The End of Globalisation

Donald Trump's recipe for reviving employment in the American economy is to impose restrictions on imports from other countries. If at the same time he had taken steps to increase the level of aggregate demand in the United States of America in other ways, such as through increasing State expenditure financed by a fiscal deficit, then restricting imports from other countries would not lead to a reduction in the magnitude of such imports in absolute terms. It would not, in such a case, cause any unemployment in other countries for the sake of boosting employment in the US. Put differently, it would not in such a case mean the export of unemployment from the US to other countries.

But even as he is protecting the US economy against imports from other countries, Trump is not increasing aggregate demand in the US in other ways. Increasing State expenditure through a larger fiscal deficit, or through enhanced taxation on the rich, who save a larger proportion of their incomes and whose tax payments therefore come substantially out of their savings, is the most obvious way of increasing aggregate demand. (Larger State expenditure financed by taxes on the working people who spend much of their income does not result in a net increase in aggregate demand). Trump, however, is not planning to increase taxes on the rich; on the contrary he is planning to reduce the corporate tax rate from 35 to 15 per cent. He has indicated a willingness to increase the fiscal deficit but the reason he is willing to do so is to accommodate this cut in corporate tax rates. In other words, he plans to increase the fiscal deficit to finance not larger State expenditure, but fiscal transfers to the rich.